Have you ever considered the true cost of a work related claim? We’re all learning the direct result on your workers compensation experience modification factor and how your insurance premiums are affected… but what about indirect costs or opportunity costs?

Some of the your customers are now requiring a modification factor below 1.00.

If you’re a contractor… a mod over 1.00 will disqualify you for the Illinois Contractor Credit.

Working Capital: the money you’re spending on premiums are misdirected.

Downtime: The injured employee, supervisor and others.

Can you afford not to implement a strategy to control your workers compensation expenses?

Historically, the emphasis on keeping premiums low has been at the time of a workers compensation insurance policy renewal. Agents start contacting employers before the expiration date to collect payroll and loss information. Applications are prepared and requests for quotes get shot out to multiple insurance companies. Problem is that this practice does nothing to control the factors that affect your workers compensation costs.

Controlling your Workers Compensation Experience Modification

Claim reserve control

Hiring Practices

Managing Injuries

Premium audit preparation

Supervisor Training

These are all important tools to truely have an impact on your long term workers compensation premium. If you are an Illinois employer or have a business in the Chicago area. Contact me for a workers compensation evaluation.

We all get busy and side step important work processes. Problem is that... it will eventually catch up to us.

Post Offer Medical Exams: after you have completed your interviews and have selected a new job candidate, a conditional offer of employment must be part of your hiring processes. The Americans with Disabilities Act (ADA) allows for Post Offer Medical Exams and it is important that you seek advice prior to implementation. There are many do’s and don’ts in order to avoid discrimination issues.

One of my Illinois Employers hired a new employee. The third day on the job this employee slipped and fell from the second step of a ladder. Fractured vertebrae in his back! But the plot thickens… allegedly - word is that this employee had a preexisting vertebrae issue.

There are many many unanswered questions right now but the fact remains that a Post Offer Medical Exam was NOT performed. We don’t even know if an exam would have disclosed this potential preexisting condition or if it would have impaired the ability of this employee from doing this job. What we do know is that this incident will cost this employer tens of thousands of dollars with the affect this claim will have on his workers compensation experience modification factor over the three years this claim will appear on his mod.

We are just getting our feet wet on this one and we are sitting on a $40,000 hospital bill form the initial visit.

We are offering a comprehensive review of your Workers Compensation Experience Modification. We find a large percentage of experience mods are incorrect. Not only are the worksheets often wrong… we will be able to highlight steps you can make to improve your experience modification factor. The review will include:

With few exceptions, workers compensation rates have been declining across the country for several years. Declining rates appear to offer employers relief, especially during these tough economic times. But declining rates can be deceiving and ultimately lead to greater total workers compensation costs. Here are three pitfalls employers should be alert to avoid when workers compensation rates go down.

Paradoxically, declining rates may actually drive up the employer’s costs and pose greater risks to their business. Many employers are often surprised to learn that a reduction in rates does not always mean a reduction in direct workers compensation costs.

As regular readers of this blog probably know, rates alone do not determine the premium cost. An experience modification factor (mod) adjusts the cost of insurance to the individual loss performance of an employer. The workers compensation premium is calculated to be:

Rate x $100 Payroll x Experience Modifier = Premium Cost

The calculation of the mod factor itself is somewhat complex, but its overall purpose is to compare an employer with similar employers in the same industry classification. If an employer’s past losses are lower than average, a credit rating reduces the premium. Conversely, if past losses are higher than average, a debit rating can actually increase costs in spite of lower rates.

If an employer’s injury costs increase, then their mod will likely increase and not only nullify the benefit of the lower rates, but actually increase the employer’s costs. In addition, when rates go down, the employer’s injury costs are expected to go down, as well. If an employer’s injury costs stay the same or go up, then it is almost certain the mod will increase even more.

Pitfall #2 – Focusing only on direct costs

Employers tend to focus more attention on injury prevention when workers compensation rates are increasing and less when rates are declining. Yet injury prevention and management is critical regardless of the direction rates are trending. Rates have little to do with ultimate workers compensation costs.

Workers compensation insurance premiums are the direct costs of funding workplace injuries. However, when an injury occurs, the indirect costs can be much greater. These indirect costs include:

overtime wages

temporary labor

increased training

supervisor time

production delays

unhappy customers

increased stress, and

property or equipment damage.

While it’s difficult to track some of these costs directly back to a workers compensation claim, they indisputably add to the overall indirect costs. However, employers recognize if they lose a key employee to an injury, then their business will suffer. An employee injury is costly, regardless of the direct insurance costs, and lower premiums have no impact on indirect costs.

Pitfall #3 – Failing to recognize the threat to business

It’s increasingly common for employers bidding on new business to find that their injury record and experience mod are important factors in whether or not they win a contract. This is most prevalent in the construction industry; however, it’s emerging in other industries as well. Suppliers are finding that they are not allowed to deliver goods to a business if their experience mod is above an acceptable number.

If an employer cannot secure new business or loses existing contracts, then lower workers compensation premiums are useless. As stated above, lower premium rates imply an expectation that employers will experience fewer injuries and lower costs. If they do not, then their experience modification goes up. Their increased experience mod may now limit their ability to grow or sustain their business.

As you can see, lower rates can act like a Trojan horse and pose great dangers for the employer. It seems ironic that an employer can be endangered by lower workers compensation premiums, but it is true.

Experience Rating Adjustment Factor (ERA); are you familiar with this term? If not and you are an Illinois employer, you’re not taking advantage of a key controlling factor in minimizing your workers compensation experience modification.

The ERA is a credit to the claim costs that are used in calculating your experience mod. If no indemnification (wages) is paid to the employee by the insurance company, your cost for the claim is reduced by 70%. This was developed to encourage employers to report small claims.

This factor alone highlights the importance of an effective return to work program. With our software calculation tools, we can show you the premium impact on a single claim.

Have you ever been presented with a report showing the effect a single claim has on your workers compensation experience modification factor? Our report will not only show the difference on your rate... it'll also show you the work comp premium you will pay during the three years the claim appears on your mod.

This report will demonstrate that insurance companies don't pay claims - they just finance them for you.

The report helps to put into perspective the importance of controlling the claim.

Are you signing contracts requiring Waivers of Subrogation on your Workers Compensation Insurance?

Waivers of Subrogation prevent your workers comp insurance company from seeking reimbursement from a negligent third party on claims that they paid to one of your employees. Waivers are not uncommon in GC to Contractor or Owner to Contractor construction agreements.

One of the many tasks we perform for our customers is to review open claims. Open claims usually have reserves assigned to them which are anticipated future payouts. Unfortunately, many reserves can be excessive or just ignored due to the work load of the claim adjuster. This will effect your Workers Compensation Premium.

The magic date to be concerned with is called your “validation date”. This is the date that your claims experience is reported to the National Council on Compensation Insurance (NCCI). Should any “reserves” be mismanaged… your experience modification factor will suffer adversely. The “validation date” is 6 months prior to your workers compensation anniversary date.

Make sure your reserves are being managed in order to keep your workers compensation premiums low.

Rather than just quote your workers compensation insurance once a year, we have a process to continually manage your long term workers comp costs and premiums. We work with many companies in the Illinois IL and Chicago area

All claims paid by the insurance company will affect your Workers Compensation Premium.

Just received a call from an Illinois workers comp client who had an employee smash his finger and loose his finger nail. He was back to work the next day on normal duty with little ramifications from the injury. The following day the doctor’s office called to schedule therapy. Yep… therapy!

My first reactions was – FRAUD, SCAM, WHAT ARE THEY THINKING! Then I settled down to realize that our injured employee was probably just plugged into the standard care processes of the occupation clinic. Probably no intend to abuse the system but it’s still our job as employers and agents to monitor the workers compensation program which includes secondary injury management. These expenses will affect your workers compensation experience modification and the work comp premium.

In this case we asked the nurse how the treatments would help and if the employee can do the therapy exercises at home. She was going to check with the doctor and get back to us. That was last week and we haven't’ received the return call yet. Employee is still fine.

Secondary Injury Management is just one key area affecting your workers compensation premiums. We can help you manage them all.

The NCCI has posted a new webinar on the workers compensation experience modification - "Advanced Experience Rating". The webinar on demand is designed to further your understanding of how the workers compensation experience modification works.

You will learn:

Elements of Experience Rating

Valuations of payroll and claim data used in calculation

Various claim limitations

When an experience modification factor is revised

Why workers compensation experience modification factors change

Understanding your mod is very important in controlling your workers compensation insurance premium. We help employers in the Illinois and the Chicago area with their workers compensation program. If you have any questions regarding this webinar feel free to give me a call - 708.293.5500.

On Friday 1/22/2010, the Illinois Supreme Court ruled that Illinois Workers Compensation benefits for temporary total disability (TTD) would continue to be paid even after an employee is terminated from employment. the ruling stated

"we hold that when an employee who is entitled to receive workers compensation benefits as a result if a work-related injury is later terminated for conduct unrelated to the injury, the employer's obligation to pay TTD workers compensation benefits continues until the employee's medical condition has stabilized and he has reached maximum medical improvement."

This ruling changed previous practices where benefits would stop if an employee was fired for "cause". Click here to read the entire case. This will have an impact on claim payments then your workers compensation experience modification and ultimately your work comp rates.

In ERA States, the Experience Modification Factor allows for the 70% reduction in the reportable amount of medical-only claims.

That is, for claims where there has been no payment to the injured worker for lost time, the medical only loss is reported at only 30% of the actual claim.

Why was this implemented by NCCI?

It gives employers an incentive to report all claims to their insurers, rather than trying to pay for medical-only claims out of pocket. Reason being, Claims are handled more efficiently by Insurance Companies rather than Work Comp Employers.

Why is this important to an employer?

Discounting medical-only claims in the experience mod calculation significantly reduces the impact of medical-only claims on the modifier.

What processes can you put in place to take advantage of this 70% credit?

1) Establish Occupational Health Clinic Relationships and Educate Management on proper procedures when an employee is injured at work.

2) Establish Return to Work Guidelines, including well-supervised and medically-appropriate temporary transitional work.

3) Coordinate with Treating Physicians, Management, and Employees.

Managing your Experience Modification and work related injuries will help reduce your Work Comp Rates!

As we have talked about, an effective first step in controlling your Workers Compensation premium is hiring the right people. But what are you hiring them to do? Most employers think that when they lose “Joe” they are looking for his replacement. Employers who have a hiring process in place focus on replacing the vacant position. That position is defined by the job description.

Having accurate and effective job descriptions in place will ensure that you are focusing on the requirements of the job and not the personality of a candidate or what the departing employee brought to the position. Job descriptions are also required to help you comply with the Americans with Disabilities Act and other laws.

You should be able to define the most important functions of a job, the physical or technical requirements, and pre-requisites and incorporate them into the description. Jobs requiring physical stamina or strength should have those requirements measured with metrics that include time, weight and frequency measures.

As an agency providing Chicago workers comp insurance, we have coached numerous companies with regards to their hiring process. We find that for many, the job description piece seems to be the most daunting. There is help; on line resources abound! The Bureau of Labor Statistics (www.bls.gov) has outlined many jobs and duties and will give employers a good start. Microsoft Office On line has several templates available.

For some positions, a Functional Capacity Evaluation might be required. This is an assessment tool performed by a physical therapist to determine the physical demands of a specific job. It can be used to screen employees in conjunction with a post-offer exam. Importantly, if a FCE is in place before a work related injury, a doctor or therapist can evaluate an injured employee’s ability to return to work when given these very specific, measured job requirements. This can help get a worker back to work when they are able and ultimately have an impact on your Workers Compensation Experience Modification. It can also be used to determine if a reasonable accommodation can be made pursuant to the ADA.

Getting job descriptions in order is a good start to developing a hiring process that will lead to the best hires and lowering your potential for work comp claims!

The information on your worksheet is collected from up to 45 months of prior policy data and provided by your insurance company. Although the data has been reviewed, errors do occur. Pay special attention to the workers compensation classification codes, payroll and losses that have been reported.

When is data reported?

Carriers are required to take a snapshot of your account, including Claim Payments and Reserves on the "Valuation Date", or 18 months after a policy is issued.For instance, a policy that begins on 01/01/2009 and ends on 01/01/2010 has a valuation date of 07/01/2010.

Losses from the 2009 policy period will be reported as of 7/1/2010 and help generate the Experience Modification for the 01/01/2011 renewal. The 2011 Experience Mod will also include data from the 2008 and 2007 policy periods.

Why is this date important?

When a claim is first reported to an Insurance Carrier, an Adjuster is assigned to follow up with the injured employee's treatment and recovery, pay the medical bills, handle disability payments, etc. They are required to set aside "reserves" as an estimate of future payments. When a claim is complete and the injured worker returns to work, these "reserves" are often left open and reported as paid losses. Higher losses generate a higher Experience Mod and drive your Work Comp Premiums up! Knowing the valuation date allows you to communicate with adjusters about closing reserves before they are reported erroneously.

The management of your Work Comp Premium begins with the person you are interviewing for that open position! Employer workers compensation risk management and hiring are closely tied together. Many times employers are motivated by the need to fill a seat and there is little consideration of whether the person hired is able to do the job. If you have ever found yourself wishing you had not hired a particular person, you know what I mean.

When employers focus on the hiring process before they have an open position, they are equipped to make the right hire. Without a process in place, employers are more likely to make a hiring decision based on emotion or simple short term need. Unfortunately, this approach can have a long term impact on your work comp premiums. Remember your workers compensation experience modification is impacted by claims for 3 years!

A good hire not only impacts your productivity and potentially your workers compensation premium but also your other employees. You probably have experienced the impact of a highly motivated and qualified employee being added to your staff. That person has the ability to raise the bar for all other employees. You may have also had the opposite. When you hire an unmotivated or unfit employee, other employees must share a greater burden of work and may become less driven towards your goals as an employer.

To get started on developing your own hiring process, you might want to take a look at thesteps suggested by MyEmploymentGuide.com. This is a simplified process but for those who need a starting point, this will help.

When considering the time and cost of making a good hire, the impact on your work comp premium will make your investment in the hiring process worth the effort!

Experience rating recognizes the differences among insureds with respect to safety and loss prevention. It does this by comparing your experience with the average employer in the same industry.

The differences are reflected by an experience rating modification, based on individual payroll and loss records, which may result in an increase (debit), decrease (credit), or no change in your Work Comp Premium.

Check out the NCCI booklet abc's of Experience Rating to further your understanding of experience rating and how it affects your workers compensation costs.